An Examination of Structural Changes in Employment and Wages in Japan

Examining the recent employment situation in Japan, we see that in the recession starting at the end of 2000, the number of employees quickly responded to the economic downturn and subsequently fell sharply. Industrial production declined more steeply in this recession than those in the past and other signs were seen that the recession had taken a turn for the worse. The worsening of labor market conditions, therefore, appears to some extent to have reflected the severity of the economic downturn. In view of traditional Japanese employment practices characterized by long-term employment and labor hoarding during recessionary periods, however, the quick and clear decline in employment may indicate that structural changes in corporate behavior had taken place. This paper will examine the relationships between economic fluctuations on the one hand, and employment and furthermore wages on the other, to see how these relationships have changed in recent years, to determine what factors have affected them, and to assess whether these relationships arise from changes in employment practices peculiar to Japan. In addition to macroeconomic developments in employment and wages, we will identify characteristics of employment and wages by industry, and then examine the relationships between the labor market and structural adjustment pressures that are confronting the Japanese economy. To end the paper, we will give a brief discussion of future developments in the labor market, the implications for the macroeconomy, and the perspective of employment policy.